A divorce signals the end of a marriage, but does it also mean the end of the family business? The answer is no if proper preparations have been made and precautionary steps taken.

The family's business is often the largest marital asset and, generally, most of the family's wealth, net worth and support are dependent upon it. In most cases, at least one spouse (if not both) owns, works or in some way participates in the family business.

When both spouses work in the family business, the personal and financial effects of divorce can be more severe. And if both spouses are active in the business and working together, the divorce process itself can lead to many challenges, such as personal recrimination and financial feuding, which can affect employee morale, productivity and profitability.

In addition, family businesses are not easily divided, so it is difficult for divorcing spouses to take their share and head their separate ways. The best strategy typically is for one spouse to keep the business by buying out the other. However, financial limitations and the covenants in lending documents sometimes mandate that the two spouses must continue working together even after the divorce, because neither can afford to buy out the other.

Is it possible to prevent a divorce from interfering with business operations? Perhaps not, but divorcing spouses can take certain steps to protect the business as much as possible so that it can continue to generate income for the newly separated family.

A prenuptial agreement is one example of a tool that can be used to protect a family's business in some instances. Children who are in line to receive stock in the family's business should be urged to have a prenuptial agreement before they marry.

Understand, however, that prenuptial agreements—even the best written ones—can sometimes be challenged in court and a judge may choose to compensate divorcing spouses in other ways. At minimum, though, it is beneficial to set a valuation procedure that addresses later acquired stock and appreciation in stock owned at the time of the marriage in order to help minimize disruption of the business.

With or without a prenuptial agreement, it's critical to identify a fair and objective means for dividing the business' wealth without actually dividing the business. One option to consider when adult children are working in the business and are the designated successors is to give part or all of the family's business to the next generation. In this way, both spouses can feel confident that the family's business wealth (or at least most of it) will not end up benefiting a new spouse. In addition, assuming there are enough other assets, the divorcing spouses have the satisfaction that they have effectively split the business by giving it to their children while still leaving the business, its operations and its future intact.

Prenuptial or other agreements might also provide for mandatory buyback of ownership in the event of a divorce using a discounted valuation and/or extended payment terms in order to preserve the business and protect its assets. A buyout may not work, however, in situations where there is a majority shareholder, since the transaction would shift control. It can, however, be effective to protect the business when minority shareholders are involved in the divorce and can protect against having to sell assets or borrow heavily to pay off the other spouse.

Divorces can be ugly with an array of emotions that often blind people from making smart business decisions. That's why it's wise to plan in advance with a cool head and with the necessary legal counsel to properly prepare the necessary documents. Too many good family businesses have gone bad during and after the divorce process. Don't let yours be one of them.

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